You’re hoping to buy your very first house this year, and you’re trying to get your finances in order before you start making bids.
You know that you’ll have to make a substantial down payment soon after making an offer. The ideal down payment is 20% of the home’s sale price, but that is a tall order in a hot real estate market. Most buyers offer a down payment below 20% for their first home. In fact, the average down payment for a house is actually closer to 6-7% for first-time buyers.
You know that you’ll also have to get approved for a mortgage loan. The size of your down payment will impact the terms of your mortgage loan — the more you pay upfront, the less you’ll have to repay through your loan over the years. Once your house purchase goes through, you’ll have to start making your recurring mortgage payments, either on a biweekly or monthly basis. You’ll have this financial responsibility on your shoulders for decades — potentially for 30 years of your life.
It’s great that you’re aware of these financial aspects of purchasing a house, but you should prepare your budget for more than a down payment and mortgage loan. There are other costs that come with buying a house. You don’t want to be surprised by them.
What costs should you prepare for?
Closing Costs
Before you can finalize your real estate purchase, you will have to pay what are called “closing costs.” These costs are a collection of various administrative fees, insurance payments, taxes and more.
These are just some common closing costs you might face:
- Attorney fees
- Courier fees
- Homeowners insurance
- Inspection fees
- Mortgage insurance
- Mortgage points
- Property taxes
Altogether, closing costs are typically 2-5% of the mortgage loan. That could be a hefty sum! You’ll want to prepare for this well before you agree to make a bid on a house.
Moving Costs
Once you’ve made the home purchase, you’ll have to move into it. This isn’t usually an activity that you can manage for free. You will have to rent a moving van. If you have items that are particularly heavy or precious, you will want to hire professional movers to transport them for you. And you may want to purchase moving insurance just in case some items get damaged.
Your moving costs will increase when your new address is far away. The average cost of moving short distances ranges between $800 to $2500. In contrast, the average cost of a long-distance move is between $2200 to $5700.
Emergency Savings
You will want to establish an emergency fund before you finalize the purchase of your house. Why? It can help you cover any urgent, unplanned costs without disrupting your budget. This could include household repairs and appliance replacements that you didn’t anticipate in the first few months after moving in.
For instance, maybe the water heater needs repairing in the middle of winter. You’ll want to be able to fix it as soon as possible. Having a pool of emergency savings on hand can help you do that.
Without an emergency fund, you might not be able to cover these types of urgent expenses without hurting your budget. In that case, you might be able to make a claim on your home warranty plan. You might be able to use your credit card to cover the payment. Or you could borrow funds through an online loan.
You don’t have to apply for a loan at your local bank branch. You can apply for loans with a phone call that’s right, you don’t even have to leave your house. As long as you meet all of the eligibility requirements, you can submit an application and quickly learn about your approval status. With an approved loan, you can pay off your urgent expense and then follow a repayment plan soon afterward.
Minimize your risks of emergency repairs by asking for a home inspection before you purchase a house. If you don’t mind footing the extra costs, you can also get other types of inspections done, like a plumbing inspection, pest inspection and lead paint inspection. These inspections will let you know if there are repairs and replacements waiting for you after you buy the house.
Your down payment and mortgage loan aren’t the only costs to consider when buying a house. Remember to budget for these additional costs!
Suman(Kul Prasad) Pandit is an accomplished business professional and entrepreneur with a proven track record in corporate and start-up sectors in the UK and USA. With a focus on sustainable business practices and business education, Suman is highly regarded for his innovative problem-solving and commitment to excellence. His expertise and dedication make him a valuable asset for businesses seeking growth and success.